Woolworths Limited: Analysis of Financial Statements and Components

This report provides a detailed analysis of Woolworths Limited's financial statements for the years 2015-2017. It begins with an executive summary and introduction outlining the report's objectives, which include examining the cash flow statement, other comprehensive income (OCI) statement, and corporate income tax treatment. The analysis of the cash flow statement includes item bifurcation and a comparison of operating, investing, and financing activities over the three-year period. The report also delves into the components of the OCI statement, explaining the nature of items such as hedging reserves, foreign currency translation reserves, equity instrument reserves, and retained earnings, along with the rationale for their exclusion from the profit and loss statement. Furthermore, the report examines Woolworths' corporate income tax, including tax expense, accounting income and tax effects, deferred tax, and the tax treatment rating. The report concludes with recommendations based on the financial analysis. The report uses Woolworths Limited's annual reports and other reliable sources to support its analysis.

WOOLWORTHS LIMITED
ANALYSIS OF FINANCIAL STATEMENTS AND ITS COMPONENTS
Student Name: Student ID:
5/16/2018

Table of Contents
EXECUTIVE SUMMARY.................................................................................................................................3
INTRODUCTION...........................................................................................................................................4
CHOSEN COMPANY DETAIL.........................................................................................................................5
CASH FLOW STATEMENT AND ITS ANALYSIS...............................................................................................5
Item bifurcation.......................................................................................................................................5
Comparison of board categories.............................................................................................................7
OTHER COMPREHENSIVE INCOME STATEMENT AND ITS ANALYSIS............................................................8
ITEMS DESCRIBE IN STATEMENT.............................................................................................................8
Detailed description of every item..........................................................................................................9
Reasons for not reporting in Statement of Profit or Loss......................................................................10
CORPORATE INCOME TAX AND ITS ANALYSIS...........................................................................................10
Tax Expense for Current Year................................................................................................................10
Accounting Income and tax effect.........................................................................................................11
Deferred Tax – Assets and Liabilities.....................................................................................................11
Income tax – Payable and Expense........................................................................................................12
Income Tax – Expense and Paid.............................................................................................................12
Tax Treatment - Rating..........................................................................................................................12
CONCLUSION AND RECOMMENDATION...................................................................................................12
REFERENCES..............................................................................................................................................13

EXECUTIVE SUMMARY
Financial Statement and their analysis is base for users of financial statements which helps in
decision making. The report has been prepared with an intention to analyze financial statements
and their part so that better decision making can happen. The major aim for which the report has
been prepared to understand the different items reported in Cash Flow statements and Other
Comprehensive Income statement of Company. The report also helps in understanding the
accounting treatment of corporation tax in financial accounting and their required disclosures as
taxes have major impact on decision making process. With theses intention, study has been
conducted in appropriate manner.

INTRODUCTION
The title of the report – Analysis of Financial Statements suggests its purpose of preparation. The
study has been done to analyze the different of different statements which are part of financial
statements of company. The study has been prepared to assess the Cash Flow Statements and
Other Comprehensive Income Statement of chosen company. The report has been prepared in
major three parts. The first describes each item which has been reported in cash flow statement
of reported company along with comparison of each item of cash flow over past three years for
chosen company. The second part helps in understanding the components of Other
Comprehensive Income Statement and their exclusion from Profit and Loss account for chosen
company. The third part explains the concept f corporation tax and its treatment in accounting
books by the company and its management. The report has been ended with proper
recommendation and conclusion. For the purpose of report, Woolworths Limited has been
selected, a company registered in Australia and listed in ASX. The study has been prepared using
the Annual Reports available on the company’s website along with other information available
through reliable sources.

CHOSEN COMPANY DETAIL
Woolworths Limited has been selected, a company registered in Australia. The company has its
operations from 1924 in Australia and enhances its operations in New Zealand as time passes.
The company is second biggest company in terms of revenue in Australia in retail industry. It has
supermarket chains across Australia and New Zealand dealing with millions of customer on daily
basis. The company has been considered as full compliance company in relation to filings
required by SEC and other laws. Company’s Annual Report for three years – 2015, 2016 and
2017 has been taken into account in preparation of the report.
CASH FLOW STATEMENT AND ITS ANALYSIS
Cash Flows statement shows the total inflow and total outflow of cash and cash equivalent for
the reporting period. The cash flow statement has been prepared according to business activities
which are bifurcated into Operating activities, Investing Activities and Financing Activities.
Item bifurcation
The following items are reported in the statement of cash flow of Woolworths Limited which are
important for analysis:-
 Revenue from customers: - This item describes the inflow of cash which is generated
from amount collected from customers of the company to whom goods and services
have been sold. The amount collected from customers of the company has been by
$169 millions in 2017 from 2016.
 Amount paid to Creditors and Employees – This item relates to outflow of cash
which are required for operations of the company. It shows that cash paid to suppliers
from whom goods and services are purchased along with payments to be made to
employees for their services in form of salary and other perquisites. The amount paid
by company has been decreased by $ 360 million in 2017 from 2016.

 Payment of Income Tax: - This item describes the tax paid by the company on the
income earned as per Australian Taxation Laws. The income tax paid by company
has been decreased by $162 million in 2017 from 2016.
 Receipts from property, plant and equipment sale: - This item shows the inflow of
cash from the sale of noncurrent assets which includes Property, Plant and
Equipment. It shows disposal of assets by company for cash or cash equivalents to
convert the investment in liquid assets.
 Payment made for purchase of Non Current Asset: - This item consists of outflow of
cash or cash equivalent to procure and invest the funds of the company in noncurrent
assets such as Property, Plant and Equipments.
 Amount paid for Business Acquisition: - To have more profits and to form synergies
in performances, business of other companies will acquired by paying the amount to
the owners of other business. This item in cash flow describes the outflow of cash or
cash equivalents in order to have net assets of the other company.
 Amount received as dividend: - This item shows inflow of cash into the company
which is received by the company on the investment made in form of shares of other
companies.
 Issue of Shares: - This item shows major inflow of cash or cash equivalent that is
received by the company by issuing shares in stock market. It is the major sources of
funds for generating funds for doing investment and operates business. In the cash
flow of Woolworths $ 55.5 million worth shares have been issued in 2017 and no
such inflow of cash in past year under consideration.
 Receipts from loans: - This item shows the inflow of cash in form of liability creation
by having borrowings from Banks and financial institutions in order to have smooth
business function (Fraser, Ormiston and Fraser, 2010). The company has taken loans
in both years 2016 and 2017 but in 2017 the amount borrowed is $ 184 million in
comparison to $ 628 million.
 Settlement of Loans: - This item is an outflow of cash which shows the amount repaid
for loans taken earlier to in order to have reduced liability for the company. The
company has paid more amounts in 2017 towards repayment of loan as compared to
in 2016 which was $ 994 million.

 Amount paid as dividend: - This item shows outflow of cash and cash equivalent
which has been paid to the real owners of the company in return of the amount
invested by them in the company. The company has paid fewer dividends in 2017 of
$540 million as compared to $ 1184 million in 2016 which shows the distrust of
owners in company (Woolworths Limited, 2016).
Comparison of board categories
Cash flows statement has been prepared on the basis of business activities which are divided in
Operating Activities, Investing Activities and Financing Activities. Any inflow or outflow of
cash and cash equivalent has been recorded in Cash flow statement after identifying the same
into these three board categories. The cash flow statements the net result from these categories in
the form of net increase or decreased in cash. The Woolworths comparison of three board
categories has been listed below:
S.
No.
Categories 30th June
2017
30th June
2016
30th June
2015

1 Net Cash Flow from Operating
Activities
$ 3,122 $ 2,357 $ 3,345
2 Net Cash used in Investing Activities $ (1,432) $(1,266) $(1,335)
3 Net cash used in Financing Activities $ (1,729) $ (1,475) $ (1,610)
4 Net Increase or (Decrease) in Cash
and cash equivalent
$ (39) $ (384) $ 400
 Operating Activities: - The cash flow from Operating Activities shows the increased from
2016 to 2017 but in three years comparison it has been decreased from 2015 which was $
3345 million. The main reason for reduction of the amount received from customers and
fluctuation in payment for purchases and payment to employees. Also, the income taxes
paid have decrease from past year showing lower revenue for the company.
 Investing Activities: - The cash has been used in investing activities for all the past three
years showing that company is involved in procurement of new assets every year so that
more profits can be earned in future. On the other hand, the company is blocking up more
liquid funds into non liquid assets like Property, Plant and Equipment.
 Financing Activities: - The company has negative funds from financing activities
showing more repayment of borrowings which was taken in past years. The company is
in the process of reducing the outside long term liabilities (Taylor, 2010).
OTHER COMPREHENSIVE INCOME STATEMENT AND ITS ANALYSIS
It is the statement which has been prepared after ascertaining the profit or loss for the period
detailed in statement of profit or loss.
ITEMS DESCRIBE IN STATEMENT
In statement of comprehensive income below are the items which have been describe and
mentioned in annual report:-
a. Reclassified Items

Hedging Reserve
Foreign Currency Translation Reserve
b. Non reclassified Items
Equity Instruments Reserve
Retained Earnings
Detailed description of every item
The items reported in company’s Statement of Other Comprehensive Income have been
described as follows:
 Hedging Reserve: - It has been details under reclassified item in statement showing that
this item will find place in profit or loss statement after actual realization of the cash
flows. In this amount has been reduced due to change in fair value of Hedge instruments
taken by the company and cash flows has not been realized from these instruments.
 Foreign Currency Translation Reserve: - This amount reflects change in fair value of
assets acquired in foreign operations which has been converted into equity. The profit
from the same will be realized in future and then it will recorded as real income in
statement of profit or loss (Bamber, Jiang, Petroni and Wang, 2010).

 Equity Instrument Reserve: - This item of statement is considered as non reclassified as it
will not be recorded in Statement of profit or loss but the corresponding reserve has been
created in future under the head Reserve and Surplus. It shows the change in fair value of
equity assets owned by the company.
 Retained Earnings: - It shows the gain or loss on actuarial valuation of superannuation
funds by the company. It will be recorded as no reclassified item in statement showing
gain or loss with effect the reserves of the company not the profit or loss (Chambers,
2011).
Reasons for not reporting in Statement of Profit or Loss
The items will not be reported in Statement of Profit or Loss as there is no actual gain or loss
from operating activities of the company rather the gain or loss have been generated in unusual
event happened in the company during reported period. Also, cash flows from or to be paid are
not fully certain to record the same under profit or loss statement. The reclassified and non
reclassified items has been reported by Woolworths Limited in compliance with AASB 101 and
other applicable accounting rules which suggest to report the item in Comprehensive Income
statement so that correct and full information can be communicated to different stakeholders of
the company for effective and efficient decision making.
CORPORATE INCOME TAX AND ITS ANALYSIS
Tax Expense for Current Year
The firm’s current tax expense as reported in its latest financial statement for the period ending
on 30th June 2017 was $ 837.50 million which shows the current tax expense of the company is
$729.9 million and other is adjustment and deferred tax (Woolworths Limited, 2017).

Accounting Income and tax effect
The actual tax expense reported and the amount calculated by multiplying the tax rate with
accounting profits disclosed are different. The two values are different because of the fact of
timing difference tax calculation which has been done in order to find the actual liability to be
payable by company. The differences in two values are also depends on followings:
- Non deductible Expenses
- Non deductible Impairment
- Non recognition of tax loss
- Tax rate differences in Off shore transactions
-
Deferred Tax – Assets and Liabilities
Every company is required to account for the timing differences appear during the year in order
to book the tax effect on that and accordingly the amount of dollar three hundred and seventy
two million have been disclosed as the deferred tax assets. The temporary differences includes
the difference in the depreciation, hedges occurred through cash flows, expenses booked as
accrual and the inadmissible expenditures, etc (Harrington, Smith and Trippeer, 2012).
-

Income tax – Payable and Expense
It is evident from the financial statements that the company has disclosed the amount of income
tax which is payable at the end of the year. Both the figures are not same with the reason thereof
that the payable includes the amount to be paid to the income tax office and expense includes the
tax and deferred tax amount. (Laux, 2013).
Income Tax – Expense and Paid
Difference has been observed in the income tax expense and the income tax paid because of the
fact that expense includes two components deferred and current. Paid part is only current and not
deferred. (Manzon, G.B. and Plesko, 2012).
Tax Treatment - Rating
On the basis of aforesaid discussion, the company has made the correct accounting treatment and
hence the rating will be good.
CONCLUSION AND RECOMMENDATION
Annual report of the company provides the statutory reports which in turn will help the users of
the financial to have an informed and meaningful decision. In the annual report of any company
four statements are majorly prepared but for the purpose of this report, cash flow statement and
the statement of other comprehensive income have been discussed. The annual report of
Woolworths Limited has been considered and accordingly its statements have been analysed in
detail. The cash flow statement has been discussed and then the reason for mentioning items
under the statement of other comprehensive income had been detailed and then the treatment of
tax expense has been made understood. The report is concluded with the end note that the
Woolworths limited are preparing all the statements in the true and fair manner.
Through the means of this report, the recommendation is being made to prepare the financial
statements with full transparency in order to provide the users of the financial statements with all
the details as required by them for decision making.